credit update 11 09 07

Except for the modest gains in Hang Seng, most major Asian stock markets closed in the red yesterday with the Nikkei down 2.22%, All Ords down 1.38% and Straits Times down 1.35. Japanese exporters and financials paced decline amidst the strengthening yen and slowing domestic demand reinforcing speculations that the Bank of Japan will keep interest rates unchanged this year as it monitors the impact of the US housing recession to Japan's economy.

The coming days are "pivotal" for the commercial paper markets as corporations would need to refinance almost $140 billion of commercial paper in Europe end of next week, of which

$60 billion is owed by conduits, firms set up to invest in longer-term assets, and the remaining is unsecured. The market for these conduits took a beating from the recent market convulsions as lenders refuse to provide credit.

Beleaguered Bear Stearns gets a boost as billionaire Joseph Lewis snapped up $860.4 million worth of the investment bank's declining stock to become one of its largest shareholders in less than a month.

Two Fed officials said that the current turmoil had begun to spill over to the broader economy, making it more and more probable that the Fed will lower the benchmark rate in their policy meeting next week. For investors, however, this is not anymore a question of whether or not the Fed will lower the interest rate but of how much lower.

The Asia credit indicators saw a general widening yesterday with the Japanese benchmarks edging up by 2 bps.

The US stock markets tumbled for the second day from the pronouncements of Fed officials that the housing slump has weakened the outlook for the over-all economy. The S&P 500 dipped 0.1% led by losses from Countrywide Financials and Home Depot. The CBoE volatility index rose 4%.